Obama reveals his executive compensation plan

[NorthSideSox72]

Obama announced some details of his plan, that he wants Congress to pass, regarding executive compensation. The main part of the plan is a cap on cash compensation for anyone at any bank that receives special federal funds (TARP or follow-ons), and that any compensation beyond that must be in the form of company stock (not options), which can only be sold after the bank repays all that federal debt.

 

That part I agree with, as long as it is specifically, only, banks that receive this bailout money. If it goes to other normally functioning companies, then that is very, very wrong.

 

But there appears to be a second part, which worries me. But it depends on how the final wording is done. Basically, companies that draw normally-available federal funds, would also be subject (along with TARP banks) to certain restrictions on spending for various non-core activities (offsites and parties, etc.), but that the rules could be waived for these non-TARP entities based on stockholder approval.

 

See how that is written? its affirmative operational control over banks that are operating normally, and that bothers the hell out of me. If a bank is operating normally, not receiving special federal support, then the US government has no right to tell it how to spend its money (as long as its legal).

 

So, good idea, with a dangerous, unacceptable tack-on. I sure as heck hope that part dies on the vine.

 

CNN link.

[mreye]

You're right, NS. Very slippery slope we're heading down.

 

Maybe I'm a naive idiot, but I'd rather have a bunch of failed banks than a bunch of banks propped up by a government that can't budget themselves, telling the banks how much they can pay their employees, what kind of bonuses they can pay, etc.

[kapkomet]

You're right, NS. Very slippery slope we're heading down.

 

Maybe I'm a naive idiot, but I'd rather have a bunch of failed banks than a bunch of banks propped up by a government that can't budget themselves, telling the banks how much they can pay their employees, what kind of bonuses they can pay, etc.

I know that NS thinks that this is just GOP carpet bombing, but I think this is only the beginning of the slippery slope.

 

[NorthSideSox72]

I know that NS thinks that this is just GOP carpet bombing, but I think this is only the beginning of the slippery slope.

What? I was the one who started the thread and said I didn't like the slope we were going down.

 

[southsider2k5]

This will go over about as well as the plan to disclose CEO salaries did to bring them down...

[kapkomet]

What? I was the one who started the thread and said I didn't like the slope we were going down.

What I mean is, they want to control everything about business that they can. This is just the start.

[NorthSideSox72]

This will go over about as well as the plan to disclose CEO salaries did to bring them down...

Thankfully, it will get shredded and changed before passing in some weak form. Like I said, it you are only talking about bailed out banks, and leaving it at stated at that level, I am OK with it.

 

[bmags]

I disagree that this Democrat government wants to control every part of business. If they did, they would have done the swedish model for the banks, which they are resisted based off of appearance and, likely, philosophy. Look, what happened in the 90s when we were so prosperous, nobody wanted the gov't to hold anyone back, and some 60 year old laws of restrictions on business and banks were repealed. These are extraordinary times and nothing I've seen so far indicates any long term reaching by the government to get all up in arms over. That will come with reforming healthcare, a fight worth the struggle.

[Balta1701]

So wait exactly, could someone reword the 2nd part for me? Nothing in the CNN article gives a good explanation for the 2nd part that people are saying is the slippery slope and how it operates, just a suggestion that more work will be done in the future.

[NorthSideSox72]

So wait exactly, could someone reword the 2nd part for me? Nothing in the CNN article gives a good explanation for the 2nd part that people are saying is the slippery slope and how it operates, just a suggestion that more work will be done in the future.

Apparently I wasn't the only one who reacted badly to that second part, because the article is now not the same on CNN. It doesn't contain the words it did.

 

Before, it made mention of a second part, where banks that were NOT given extraordinary help (TARP), but who accessed normally available federal funds (which is nearly all banks), would be subject to certain restrictions on compensation and spending. That part is gone now.

 

[Balta1701]

Apparently I wasn't the only one who reacted badly to that second part, because the article is now not the same on CNN. It doesn't contain the words it did.

 

Before, it made mention of a second part, where banks that were NOT given extraordinary help (TARP), but who accessed normally available federal funds (which is nearly all banks), would be subject to certain restrictions on compensation and spending. That part is gone now.

Well, in that case it's difficult for me to comment, but I could certainly see it making sense for the federal government to give an advantage in its general contracting process to firms that have more reasonable compensation levels.

[Texsox]

Dear bailed out companies:

 

So we taxpayers gave you money and now you want we the taxpayers to butt out. I have a problem with that. If you want my money, it is coming with some strings. I did not give you money for a new jet or to throw a party. So if you are now pissed that I want some control, too bad. I'm going to be p;aying for your mistakes for many, many, years.

 

Yours truly,

Tex

[southsider2k5]

The fall out has begun... What does this mean you ask? It means less money available for lending in the end. You can bet if an industry leader like GS is going to do this, that you will see a lot more banks pulling out, and instead sacrificing lending while they try to raise more capital.

 

http://www.bloomberg.com/apps/news?pid=206...&refer=home

 

Feb. 4 (Bloomberg) -- Goldman Sachs Group Inc. wants to repay the $10 billion it got from the U.S. Treasury last year to signal the firm is healthy and to escape limitations that were imposed with the money, Chief Financial Officer David Viniar said.

 

“Operating our business without the government capital would be an easier thing to do,” Viniar said today at a conference hosted by Credit Suisse Group AG in Naples, Florida. “We’d be under less scrutiny and under less pressure.” He added, “It would send a very good signal” if the firm could repay the money.

 

Under current rules, Goldman and other firms that received money under the Troubled Asset Relief Program, or TARP, are required to raise common or preferred equity to replace the government funds, Viniar said. The company, which received the government money in October, will consider raising money “if the markets are good,” he said.

 

“It’s not really restricting the way we do business but it was not meant to be permanent capital,” Viniar said. “There are pretty minor, at this point, executive compensation restrictions and we’d like to get out from under those,” he said.

 

Obama’s Plan

 

Compensation limits unveiled by President Barack Obama only affect companies that receive exceptional aid from the government in the future and won’t apply to companies such as Goldman that have already received money. Goldman Sachs’s top seven executives didn’t take any bonuses for 2008. The firm paid out $10.9 billion in compensation for 2008, down 46 percent from a record $20.2 billion in 2007.

 

The government investment also limits the firm’s ability to raise dividends and to repurchase stock, except for repurchases of stock that’s granted to employees as compensation, Viniar added.

 

“So there are capital structure restrictions on having the TARP, we would like to get out from under those so that we can do what we think is correct,” he said.

 

“We would only do it if we did it in conjuction with the Fed and the Treasury and with their blessing and with their desire,” Viniar said, of plans to repay the government. “We would like to do it and we would like to do it as soon as we can and it will just take a little while.”

 

Goldman will also be “very cautious” about considering any acquisitions because there’s a longer record of unsuccessful deals in the financial services industry than successful ones, Viniar said. He said the firm is likely to maintain its current business of focusing on corporate and institutional clients rather than entering the retail business.

 

“I would not pick up the Wall Street Journal every morning looking for the big Goldman Sachs acquisition because I think you will be disappointed,” he said. “We don’t really like or know the retail business and I don’t expect that to change too much.”

 

To contact the reporter on this story: Christine Harper in New York at [email protected].

[NorthSideSox72]

The fall out has begun... What does this mean you ask? It means less money available for lending in the end. You can bet if an industry leader like GS is going to do this, that you will see a lot more banks pulling out, and instead sacrificing lending while they try to raise more capital.

 

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Fallout? I call that a good result.

 

First of all, GS isn't lending out much money anyway, that itsn't their gig. They are an investment firm. The borrow a lot more than they lend, and they lend to other investment firms anyway, not mortgage holders.

 

Second, if more banks can pay that back with the pegged return, that is a good thing.

 

Third, for banks that actually lend to consumers and businesses for development and real estate, if they can raise enough cash to pay back right now, then they are stable enough to work their way out of this situation anyway. So no need to give them this money. Also a good result.

 

Fourth, for banks that can't pay it back right now, the restrictions are good anyway. More return for investors, more cash to do something useful with.

 

Really, I see no downside here.

 

[southsider2k5]

Fallout? I call that a good result.

 

First of all, GS isn't lending out much money anyway, that itsn't their gig. They are an investment firm. The borrow a lot more than they lend, and they lend to other investment firms anyway, not mortgage holders.

 

Second, if more banks can pay that back with the pegged return, that is a good thing.

 

Third, for banks that actually lend to consumers and businesses for development and real estate, if they can raise enough cash to pay back right now, then they are stable enough to work their way out of this situation anyway. So no need to give them this money. Also a good result.

 

Fourth, for banks that can't pay it back right now, the restrictions are good anyway. More return for investors, more cash to do something useful with.

 

Really, I see no downside here.

 

The bottom line is that it takes $10 billion out of circulation, without even factoring in the multiplier. If this starts to happen in scale, this is exactly what caused the depresssion to go from a panic, to a depression. This would be the end of lending. The only companies that would comply would be the ones who would go under without the extra funds, and those groups won't be able to lend regardless because the funds are what is going to keep their capital ratios in check.

[Balta1701]

The bottom line is that it takes $10 billion out of circulation, without even factoring in the multiplier. If this starts to happen in scale, this is exactly what caused the depresssion to go from a panic, to a depression. This would be the end of lending. The only companies that would comply would be the ones who would go under without the extra funds, and those groups won't be able to lend regardless because the funds are what is going to keep their capital ratios in check.

Then does that not give the TARP program an additional $8 billion or so (assuming a couple billion loss because of how crappy of a deal Paulson negotiated for the taxpayers) which can then be moved to a bank that actually is in trouble and actually does need the additional capital?

 

If this particular firm isn't practically bankrupt, then they shouldn't have been forced to accept the TARP funds anyway.

[NorthSideSox72]

Then does that not give the TARP program an additional $8 billion or so (assuming a couple billion loss because of how crappy of a deal Paulson negotiated for the taxpayers) which can then be moved to a bank that actually is in trouble and actually does need the additional capital?

 

If this particular firm isn't practically bankrupt, then they shouldn't have been forced to accept the TARP funds anyway.

Exactly. Weird, on financial matters, I usually agree with SS and disagree with you, but here its reversed.

 

I do not think this is the end of lending. See my responses, and add in the fact that this added money wasn't resulting in bigger lending anyway, from what I have read (at least not in large enough scale).

 

[southsider2k5]

Exactly. Weird, on financial matters, I usually agree with SS and disagree with you, but here its reversed.

 

I do not think this is the end of lending. See my responses, and add in the fact that this added money wasn't resulting in bigger lending anyway, from what I have read (at least not in large enough scale).

 

By itself, no it isn't enough to change the system. If this starts happening across the board, yes it could do unfixable harm to the TARP. GS isn't a follower, it is a leader. If they are looking at their acturial

 

The original idea wasn't to rescue just the bad banks, it was to take bad assets away from banks, to free up money for lending again. There is a big difference there. If GS has $10b in bad assets, it can't lend that money out again, no matter what their capital ratios look like. That money is stuck in limbo, and because of Sarbane's Oxley, is actually causing a detriment to their lending, because not only can they not lend it again, but if there are taking a loss, that takes away from the other moneys they can lend out because the bank as a whole still has to be under their capital rations, with mark to market accounting factored in.

[Texsox]

SS, I'm puzzled. You generally believe the government should stay out, now your saying that the government can solve the problem. I have a difficult time believing that GS would hurt themselves to spite the government. Much like Chrysler paying back their loan early in the 1980s, it seems this is a positive sign of a rebound. And if GS is harming themselves to save them from some government oversight, what does that tell you?

[southsider2k5]

SS, I'm puzzled. You generally believe the government should stay out, now your saying that the government can solve the problem. I have a difficult time believing that GS would hurt themselves to spite the government. Much like Chrysler paying back their loan early in the 1980s, it seems this is a positive sign of a rebound. And if GS is harming themselves to save them from some government oversight, what does that tell you?

 

Chrysler isn't a bank. Its hard to compare a company that doesn't have the extra set of GOVERNMENT requirements that a bank does. Not to mention is yet another set of GOVERNMENT requirements that is causing the GOVERNMENT program to potentially fall apart. As for the last sentence, that tells me that it is probably more profitable to not have to deal with the federal governments interference in GS, than to deal with them.

[Balta1701]

Chrysler isn't a bank. Its hard to compare a company that doesn't have the extra set of GOVERNMENT requirements that a bank does. Not to mention is yet another set of GOVERNMENT requirements that is causing the GOVERNMENT program to potentially fall apart. As for the last sentence, that tells me that it is probably more profitable to not have to deal with the federal governments interference in GS, than to deal with them.

Quite frankly, that's the way it should be. There should be no profit in taking a gigantic loan from the federal government to cover a decade of disastrous decision making on the part of your company.

[southsider2k5]

Quite frankly, that's the way it should be. There should be no profit in taking a gigantic loan from the federal government to cover a decade of disastrous decision making on the part of your company.

 

And the government isn't going to be able to force them to lend anymore. There is lies the problem. The government can throw a trillion dollars into a hole like it is planning, but the economy isn't going to recover in a real way until the banks recover. We can put blips on the radar, but that isn't going to work long term. Go back and look at the Great Depression. There wasn't a real, meaningful recovery until the banking system got healthy.

[Balta1701]

And the government isn't going to be able to force them to lend anymore. There is lies the problem. The government can throw a trillion dollars into a hole like it is planning, but the economy isn't going to recover in a real way until the banks recover. We can put blips on the radar, but that isn't going to work long term. Go back and look at the Great Depression. There wasn't a real, meaningful recovery until the banking system got healthy.

The banks aren't going to recover until the housing market and the credit markets finally bottom out and some semblance of order returns where people actually have some idea of what they own and how much it is worth.

 

The government bailouts have to be viewed in that light; they're bridge loans, to get through the point either a year from now if the market reacts normally and a stimulus plan is passed or 3 years from now if no plan is passed or if the Senate's "Reinflate the bubble" provision stays in the stimulus plan.

 

If a company is in good enough financial shape that they can weather the storm on their own, then it is a waste of bailout funds to force them to accept additional money. That money would be far better spent as loans that actually keep the banks that aren't in good enough shape to weather the storm out of bankruptcy.

[mr_genius]

These banks are not free market entities. I am totally in favor of this move. Hopefully it will discourage other 'private' business entities from going to the bailout welfare program.

 

Good job Obama.

[southsider2k5]

The banks aren't going to recover until the housing market and the credit markets finally bottom out and some semblance of order returns where people actually have some idea of what they own and how much it is worth.

 

The government bailouts have to be viewed in that light; they're bridge loans, to get through the point either a year from now if the market reacts normally and a stimulus plan is passed or 3 years from now if no plan is passed or if the Senate's "Reinflate the bubble" provision stays in the stimulus plan.

 

If a company is in good enough financial shape that they can weather the storm on their own, then it is a waste of bailout funds to force them to accept additional money. That money would be far better spent as loans that actually keep the banks that aren't in good enough shape to weather the storm out of bankruptcy.

 

I think you missed the whole idea of the TARP funds. They were supposed to take bad assets off of the books of banks. Somewhere in the process that got corrupted. Originally it wasn't supposed to be an aid package to banks per se, it was to free up capital to be able to lend again. There is a very distinct difference there. In reality getting the banks who are still strong out of the plan and having more of their capital tied up is a pretty dumb idea. That just means less money in the system, and more contraction of the economy. The housing market is just the reason why the banks are bleeding now. If you take those loans off of their books, they don't have that exposure anymore, and they now have the ability to lend again. Being able to lend again is what will give people the ability to buy houses again, and business property, which is what will start the recovery. The multiplier works in reverse as well Every dollar you take out of the system, contracts dollars not spent down the line.